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ehidna [41]
3 years ago
9

On January 1, a company issues bonds dated January 1 with a par value of $240,000. The bonds mature in 5 years. The contract rat

e is 11%, and interest is paid semiannually on June 30 and December 31. The market rate is 10% and the bonds are sold for $249,262. The journal entry recorded on the maturity date (after the last semiannual interest payment has been made and recorded) is:
Business
2 answers:
erica [24]3 years ago
3 0

Answer:

The journal entry on maturity is as follows:

Dr bonds payable  $240,000

Cr cash                                     $240,000

Being redemption of bonds

Explanation:

At the end of the life of the bond,the bond premium or discount would have been fully amortized,hence the only entry left to be made is to debit bonds payable account with face value of the bond and a credit of the same amount to cash account to record the outflow of cash.

The face value of the bond is $240,000,hence the $240,000 is debited to bonds payable in order to finally cancel the debt obligation.

Furkat [3]3 years ago
3 0

Answer:

Journal Entry on Maturity

Dr. Bond Payable  $240,000

Cr. Cash                 $240,000

last Interest Payment

Dr. Interest Expense                    $12,463

Dr. Premium on Bonds Payable $737

Cr. Cash                                       $13,200

Explanation:

When bond is issued over the its face value, then bond is known as issued at premium. The premium value is amortized over the life of the bond.

Interest payment = $240,000 x 11% x 6/12 = $13,200

Now calculate the bond amortization using effective interest method.

Premium amortization = $13,200 - (249,262 x 10% x 6/12) = $737

Interest Expense can be calculated as follow

Interest expense = Interest Payment - Premium amortization = $13,200 - $737 = $12,463

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